Achieving commercial justice in the new COVID-19 world

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As economies gradually lift confinement measures and businesses reopen, it is crucial to evaluate the potential consequences of COVID-19 (coronavirus) pandemic for commercial justice around the world. Many cases were put on hold for weeks, and many more will flood the courts as companies continue to default on some of their obligations or choose to file for bankruptcy. Alternative dispute resolution (ADR) mechanisms, such as arbitration, mediation and conciliation, can support courts in handling the upcoming tsunami of litigation. Governments should quickly adopt measures – in the form of court fees refunds, tax credits or other fiscal incentives – to promote the use of ADR. At present, only 34 countries worldwide have such incentives (Figure 1).

Figure 1: Existing financial incentives for parties to attempt mediation or conciliation

Gramckow et al., 2016, shows that an effective and efficient justice system is essential for sustained economic growth. Amid the global pandemic, courts have suspended non-essential functions, postponed cases, and promoted remote access services. To sustain partial judicial activity during the lockdown, some countries like Ukraine and Nigeria have resorted to videoconferencing, while others like Belgium are moving towards written proceedings with no oral hearings. In the United States, some states are experimenting with “court on wheels,” using small buses to take justice on the road. Still, the global trend is that hearings are limited to “urgent” cases only, which usually does not cover commercial litigation cases. Italy, for example, expressly indicated by decree which matters are deemed urgent (family and some criminal cases). Morocco issued a clear distinction between criminal and civil litigation with only some of the former deemed urgent. Other economies, like the Netherlands, adopt a case-by-case approach. 

The extent of the backlog that the COVID-19 pandemic will cause is unknown, but the projection can hardly be optimistic. Even a short pause in court functions can severely impact the efficiency of a court system, as the study of judicial summer breaks shows. For example, in Rwanda a month of court inactivity during mandatory summer leave caused considerable backlogs in the judiciary, with evidence showing that commercial cases that were filed during that period suffered an average 6-month delay. Before the pandemic, according to the World Bank’s Doing Business data on enforcing contracts, the global average time to enforce a commercial contract was 650 days, with regional variations. 

Love, 2011, shows that ADR enhances access to justice and improves efficiency in the court system as a whole by helping to reduce case backlogs and bottlenecks. A big advantage of ADR is that practitioners are less impacted by lockdowns or travel restrictions imposed by governments and have the capacity to adapt to different circumstances. It gives parties to a dispute the power to decide what to do and how to do it. This flexibility will be crucial in the new COVID-19 world as social distancing and online tools become essential parts of life. ADR is particularly relevant for small commercial disputes where the matter is not complicated, and parties are more willing to resolve the dispute quickly to avoid spending time and money on lengthy litigation proceedings. For example, in Bulgaria or Latvia, parties that successfully mediate a case can have 50% of their filing fees reimbursed. Poland has gone even further by entirely reimbursing filing fees if parties successfully mediate. That is still a very small price to pay if the goal is to keep the court system afloat. 

Economic crises usually create stronger motivation for reform. The COVID-19 pandemic will likely not be an exception, and countries  should implement and promote ADR wisely  to prevent huge backlogs in courts. The Doing Business data already shows that most countries have introduced at least some provisions related to mediation, conciliation, or arbitration. However, this is usually not enough if countries want to see a considerable spike in the use of ADR. Measures must be put in place where courts can promote and incentivize the use of ADR at the initial stages of the proceedings.

Authors

Maksym Iavorskyi

Operations Analyst, Growth Analytics.

Joseph Lemoine

Analyst - Growth Analytics, Development Economics Vice Presidency

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